BIR Ruling [DA-394-03]

November 4, 2003 BIR RULING [DA-394-03] 24 (D); RMO 41-91 DA-147-2002 Ms. Alma Fe J. Garcia 7 Amsterdam St., Merville Park, Paraaque City M a d a m : This refers to your letter dated March 22, 2001 asking for the tax liabilities of a seller/owner in an expropriation sale. It is represented that you are the registered owner of real properties consisting of two parcels of land with an area of Thirty Nine Thousand Five Hundred and Ninety (39,590) square meters and Eight Thousand Five Hundred Sixteen (8,516) square meters, respectively, covered by TCT Nos. T-48831 and T-36661, both located at Baungon, Province of Bukidnon; that the subject parcels of land were expropriated by the National Irrigation Administration (NIA) through an expropriation proceedings docketed as Civil Case No. 2000-422 in the Regional Trial Court of Bukidnon; and that the said court issued a writ of possession in favor of the NIA after the latter has deposited the amount of P 1,803,490.00 under your account. In reply, please be informed that under Section 24(D)(1) of the Tax Code of 1997, capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts, shall be taxed at the rate of 6% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Provided, that the tax liability, if any, on gains from sales or other dispositions of real property to the government or any of its political subdivisions or agencies or to government-owned or controlled corporations shall be determined either under Section 24(A) or under Section 24(D)(1) both of the Tax Code of 1997, at the option of the taxpayer. Accordingly, the aforecited provision accords the taxpayer the option to determine his tax liability either under the Section 24(D)(1) or under Section 24(A) both of the 1997 Tax Code. In other words, the taxpayer may either pay (a) a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher; or (b) the graduated income tax rate provided under Section 24(A) of his taxable income. If the taxpayer chooses the option (b), the sale will be subject to the appropriate withholding tax under Revenue Regulations No. 2-98, as amended. TIaCcD The documentary stamp tax due shall be based on the actual consideration on the transaction in accordance with Section 196 of the 1997 Tax Code, which provides in part: "SEC. 196. Stamp tax on Deeds. of Sale and Conveyances of Real Property . On all conveyances, deeds, instruments, or writings, other than grants, patents or original certificates of adjudication issued by the Government, whereby any land, tenement or other realty sold shall be granted, assigned, transferred or otherwise conveyed to the purchaser, or purchasers, or to any other person or persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax, at the rates herein below prescribed, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of this Code, whichever is higher: Provided, That when one of the contracting parties is the Government, the tax herein imposed shall be based on the actual consideration." (Emphasis supplied.) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group